Artificial Intelligence (AI) has rapidly emerged onto the global investment landscape, but investors do not always need to look outside the UK to find compelling opportunities.
UK represents one of the key hubs for artificial intelligence, with more software developers based here than anywhere else globally bar Silicon Valley.
“When investors think of artificial intelligence they may well think about some of the largest companies in the world, such as Facebook, but actually there are opportunities right here in the UK.”
“The UK has always had a history of leading the way in technology, and today even giants like Google have their AI divisions based in London.”
One UK Company which Ford and co-manager Tim Day favour for inclusion in the portfolio is Blue Prism, the AIM-listed software developer. A creator of automated “bots” which can carry out repetitive computer processing jobs, the company helps clients cut costs and reduce human error.
“Blue Prism offers a very compelling proposition,” says Ford. “It has a 100% renewal rate and is expanding rapidly, having already acquired more new clients in 2017 than it did in the whole of 2016, when it added 96.
“On a top-line growth view, it is a genuine unicorn asset. There is no other stock like this that is listed that we are aware of, and the scope of its potential client base is huge.”
Blue Prism was selected for the circa 35-stock S&W portfolio using an investment process designed by Ford and Day. It begins by screening for companies globally that meet the managers’ liquidity criteria, creating a universe of around 17,500 stocks with a market capitalisation above $250m.
A proprietary AI platform then reviews data from online sources to search these companies for the key markers of artificial intelligence, as defined by the investment managers. This rapidly and efficiently reduces the initial 17,500 companies to a universe of around 500 which the team know are worthy of inclusion in the Ai portfolio, spread across a range of sectors and geographical regions.
The managers then apply their expertise, intuition and judgement to filter these companies further by assessing their breadth and depth of involvement in AI. Ford and Day analyse and score each company’s ability to sense and gather data, process it algorithmically, and deliver a service into the real world using AI in one form or another.
The stocks are then assessed for their degree of AI purity. This is based on an estimation of the percentage of a company’s revenue dependent on artificially intelligent platforms, and the impact of AI on the company’s overall growth rate. The overall importance of the AI platform to the underlying business is also an important factor.
The stocks that pass the ‘purity test’ are then considered for inclusion within the portfolio, once an assessment of the valuation has been concluded.
“This is a high conviction fund, diversified by sector and region, offering the opportunity to invest in companies which are embedding artificial intelligence into their businesses,” adds Ford. “We believe this will offer investors access to one of the most compelling structural growth trends, with potentially the longest duration, that exists anywhere across global equity markets.”
Chris Ford, fund manager, Smith & Williamson